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By Todd BenDor
The adoption of market-based environmental policies (e.g. cap and trade, ecosystem offset markets, pollution markets) has been driven by theoretical and empirically validated improvements in policy> efficiency. The largest and most complex U.S. ecosystem services market (trading nearly $3 billion in restoration annually) emerges from U.S. Clean Water Act offset requirements that require environmental restoration (“compensatory mitigation”) to offset aquatic resources damaged during development. In the wake of increased demand for private, third party creation of offsets, and newfound regulatory support for market policies, regulators have sought to improve market designs. We argue that improving policies that govern ecosystem market operation require explicit evaluation of distinct risk elements affecting both regulators and offset providers. In this article, we analyze extensive regulatory data to understand how risk affects the prevalence of mitigation banking, a technique for creating ecological restoration that forms the backbone of the compensatory mitigation industry. Using extensive national data on offset demand, banking policies, and relative offset production costs, we assess how two important aspects of market structure, geographic market size and staged credit release policies, affect bank prevalence and volume of for-profit ecosystem restoration.
Todd Ben Dor is an Assistant Professor of City and Regional Planning at the University of North Carolina at Chapel Hill For additonal information about this research please contact the author: